Baker and Baker
[2016] FCCA 833
•22 February 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BAKER & BAKER | [2016] FCCA 833 |
| Catchwords: FAMILY LAW – Costs – costs stemming from the determination of property adjustment proceedings – where costs are sought on an indemnity basis. |
| Legislation: Federal Circuit Court Rules 2001, rr.4.03, 21.05 Family Law Act 1975, ss.117, 117(2A) |
| Re JJT & Ors; Ex Parte Victoria Legal Aid [1998] FLC 92-812 I & I (No.2) (1995) FLC 92-625 Prantage & Prantage [2013] FamCAFC 105 Marks v GIO Australia Holdings Ltd (1996) 137 ALR 579 Re Wilcox, Ex parte Venture Industries Pty Ltd [1996] 72 FCR 151 MGICA (1992) Ltd v Kenny & Good Pty Ltd (No 2) [1996] 70 FCR 236 McHattan v Saramoa Charters Pty Ltd (unreported, Federal Court, Full Court, 17 September 1996 Boyapati v Rockefeller Management Corporation (No 2) [2008] FCA 1375 Strahan & Strahan (Appeal Costs) [2009] FamCAFC 225 Michos v Council of the City of Botany Bay (No 3) [2012] NSWSC 1465 State of Victoria v Grawin Pty Ltd [2012] VSC 157 Pine Rivers, Caboolture and Redcliffe Group Training Scheme Inc (t/as East Coast Apprenticeships) v Group Training Assoc Qld and Northern Territory Inc [2013] QSC 87 Kenneally v Pouras & Ors [2007] SASC 303 Hayward v Forest Practices Tribunal (No 3) [2004] TASSC 14 Re Malley SM; Ex parte Gardner [2001] WASCA 83 Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536 |
| Applicant: | MR BAKER |
| Respondent: | MS BAKER |
| File Number: | PAC 3859 of 2011 |
| Judgment of: | Judge Harman |
| Hearing date: | 22 February 2016 |
| Date of Last Submission: | 22 February 2016 |
| Delivered at: | Parramatta |
| Delivered on: | 22 February 2016 |
REPRESENTATION
| Counsel for the Applicant: | Mr Croker |
| Solicitors for the Applicant: | Beilby Poulden Costello |
| Counsel for the Respondent: | Mr Givney |
| Solicitors for the Respondent: | Bond & Bond |
ORDERS
Dismiss the Application in a Case filed 21 October 2015 together with the Response to Application in a Case filed 14 January 2016.
All outstanding Applications and Responses are withdrawn and dismissed and all issues are removed from the list of matters awaiting hearing.
IT IS NOTED that publication of this judgment under the pseudonym Baker & Baker is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PARRAMATTA |
PAC 3859 of 2011
| MR BAKER |
Applicant
And
| MS BAKER |
Respondent
REASONS FOR JUDGMENT
Issues for Determination
This determination arises from an Application in a Case filed by Mr Baker (the husband). The Application in a Case seeks an Order for the payment of his costs by Ms Baker (the wife).
It is inherent from the manner in which that relief is sought that costs are sought on an indemnity basis.
A Response to the Application in a Case has been filed by the wife.
The issue of costs arises from the determination of substantive property adjustment proceedings between these parties.
These proceedings were heard by Judge Donald who is no longer sitting. The hearing took place in February 2015. Judgment was delivered, and Final Orders made 23 September 2015.
The Application in a Case was filed 21 October 2015. I accept, (and no challenge is raised) that the Application in a Case is filed within the time limit prescribed by the Federal Circuit Court Rules 2001.[1]
[1] Rule 4.03 of the Federal Circuit Court Rules 2001
Costs are sought on a number of bases. Principle amongst these is reference to and reliance upon an offer of settlement made by the husband during the course of the substantive proceedings. I will return to deal with that issue, and the issue of costs at large, shortly.
Material considered in dealing with the proceedings today
I have read and considered each of the documents relied upon by the parties.
In the husband's case I have considered:
a)The Application in a Case filed 21 October 2015;
b)The Affidavit of the husband's solicitor, sworn or affirmed 20 October 2015 and filed 21 October 2015;
c)Exhibit A1, comprising a case outline document;
d)Exhibit A2, a bundle of invoices, retainer agreements and costs agreements regarding the husband's fees incurred in the proceeding;
e)Exhibit X, the Judgment of Judge Donald; and
f)The husband's Response filed in the substantive proceedings, 5 October 2011.
In the wife's case, I have read and considered each of the documents she has identified and relied upon, comprising:
a)The Response to an Application in a Case filed 14 January 2016;
b)The Affidavit of the wife's attorney, sworn or affirmed 14 January 2016 and filed the same day;
c)Exhibit R1, a portion of the Case Outline document relied upon at hearing before Judge Donald; and
d)Exhibit R2, a Case Outline document with respect to the issue of costs.
I have also been referred by the legal representatives for each of the parties to a number of authorities which I will refer to in due course.
History of proceedings
The substantive proceedings were commenced by an Initiating Application filed 22 August 2011. What would be readily apparent is that the matter was not then heard for a period approaching four years. The matter was finalised by delivery of Judgment of Final Orders after a period of four years and one month from the date of commencement of proceedings.
On its face, that would appear an extraordinary delay for a matter of this nature. However, there are a number of factors that would appear to have impacted upon the delay in determination of the primary suit.
Firstly, the proceedings were commenced by an Application filed in the Family Court of Australia. The matter remained before that Court, and was the subject of some seven Registrar conducted Court events.
An Order was eventually made by a Registrar in Chambers, 7 April 2014, transferring the proceedings to the Federal Circuit Court of Australia sitting at Parramatta. The proceedings would appear to have been transferred at the Court’s own motion and some 32 months after the matter had been commenced.
There is a protocol between the Courts regarding transfer of proceedings. Financial proceedings of this nature are to be transferred on the first occasion when it is apparent that the jurisdiction of the other Court is appropriate. That the matter was properly within this Court’s jurisdiction would have been apparent at the first Court event, namely, 5 October 2011, not a Court event some two and a half years subsequently.
The purpose of the protocol is to facilitate the expeditious address of proceedings and to allow the Court that will ultimately hear and determine the matter to manage the case, applying that Court's rules and procedures, and addressing the matter in the fashion that the docketed Judge determines is appropriate. Certainly, Judge Donald was deprived of that opportunity.
The proceedings were transferred as is noted in one of the direction sheets and as is common practice, at least in this Registry, to enable the parties to “obtain a hearing date”.
It is not for Registrars of the Family Court of Australia to transfer proceedings to this Court, late in the day, purely so that the case can be heard and determined by the Federal Circuit Court of Australia. If the case was appropriate to be before this Court, then the Registrar should have transferred the matter at the first opportunity and not after seven Court events.
If hearing dates were to be allocated to the matter after seven Court events then one might think that hearing dates would have been allocated by the Court before whom the matter had been maintained for that period, the Family Court of Australia.
I have raised the above matters as it is a particularly problematic issue that continues in this Registry, sadly, notwithstanding frequent case management discussions.
Once transferred, the matter was expeditiously listed for mention and directions to 20 May 2014. On the first Court event before this Court a hearing date was fixed for the matter. The matter was then heard and determined as quickly as could be accommodated. That was, in reality, a matter of some months.
Secondly, the delay would appear to have arisen as a consequence of the parties being desirous of awaiting the finalisation of compensation proceedings, in which the husband was involved before litigating their dispute before this Court. Those proceedings related to injuries that were sustained by the husband and which may not have completely manifested themselves as at the date of separation.
In any event, the finalisation of that claim and the determination of that claim by those seized with responsibility for doing so, occurred well and truly after the separation of the parties. All of those matters are addressed by Judge Donald in his Judgment and I need not address them further.
Proposals
The husband seeks costs on an indemnity basis.
The wife resists the Application for costs made by the husband.
The parties have each provided submissions, both through the Case Outline documents they have filed as well as through oral submissions. Needless to say, the parties have incurred further cost in addressing this issue.
The costs incurred in the substantive proceedings by each of the parties are suggested to be in excess of $50,000.
Legislative basis for costs
Issues of costs are dealt with by section 117 of the Family Law Act 1975.
The regime created by section 117 of the Act is different to that in many other Civil Courts. In proceedings under the Family Law Act costs do not follow the cause.
Section 117(1) of the Act creates what is often referred to as “the general rule”, that each party to proceedings shall bear his or her own costs. That general rule is subject to the discretion reserved by subsection (2), that the Court may, if it is of the opinion that there are circumstances that justify it in doing so and where it would be just and equitable for it to do so, make an Order for costs (for discussion of the application of that dual test, (see Re JJT & Ors; Ex Parte Victoria Legal Aid [1998] FLC 92-812).
The parties have each addressed the various considerations that the Court must turn its attention to by reference to subsection (2A). The considerations therein are prescriptive but non-exhaustive.
As is submitted on behalf of the wife, and appropriately so, the consideration of the factors set out in section 117(2A) of the Act is done by addressing in their totality. The Court does not isolate or address factors singularly, although one factor might have vast importance perhaps near dispositive weight as against all others.
The approach urged by the wife’s Counsel is identified in I & I (No.2) (1995) FLC 92-625, and the passage to which the Court is referred is that which guides the Court, directing that the Court must consider all relevant matters and dictating that those factors, “must all be taken into account and/or balanced in order to determine whether the overall circumstances justify the making of an order for costs”.
I do not propose to canvass the evidence of the parties in vast detail. It is set out in the documents that are filed and identified above. However, it is germane to note the following.
The Application filed by the wife, who was the moving party in the substantive proceedings, sought relief in the following terms:
a)Firstly, that the matrimonial home of the parties, the property at Property W, be listed for sale and sold, and that the net proceeds of sale, after payment out of any mortgage encumbering that property - although the evidence would appear to suggest that, certainly at the date of hearing, there was none - be divided between the parties as to 70 per cent to the wife and 30 per cent to the husband;
b)Secondly, the wife also sought an Order whereby she would receive one-half of the total superannuation funds available, being funds predominantly held by the husband.
The husband, by his Response, had sought that he retain the home and that he pay to the wife an amount which would have the effect of achieving a 65/35 per cent division of the total value of the assets of the parties, favouring the husband.
The husband sought, as part of that 65/35 per cent adjustment, that an Order or orders be made with respect to superannuation splitting. By the time of hearing it is clear that the husband had resiled from that position, although his Response was never amended, and at hearing the husband opposed any Order for superannuation splitting seeking instead a cash adjustment to take account of the value of superannuation.
The husband’s amended position may well have arisen in circumstances whereby the husband's financial circumstances, indeed his life, had changed substantially. He was, by the time of final hearing, clearly unable to work and, as a consequence, had received a significant compensation payment.[2] That asset, having crystallised, is suggested to be of significance as well to the relief as sought by each party.
[2] This may well have caused or permitted the husband’s superannuation interests to vest as the husband was totally and permanently disabled at the date of hearing.
Clearly, His Honour Judge Donald, when he was dealing with the proceedings, adopted what might be described as a “two pool approach”. That was what each party had sought that Judge Donald do. In any event, the importance of that approach and the husband’s compensation funds link in with the time that it has taken these parties to achieve a finalisation.
I cannot accept, as the wife alleges, that the wife was unaware of the husband's asset as regards his compensation claim at the time that she filed and formulated relief. The asset crystallised during the course of the proceedings. The asset did not come into existence. The asset existed at the time that the wife filed. It was a chose in action. Its value could not be accurately ascertained as the compensation proceedings had not concluded. However, the asset itself was in existence.
During the course of the proceedings, and, perhaps, the most relevant basis of the costs Application, the husband raised an offer of settlement. It is suggested that the offer of settlement is manifested both in an oral offer communicated during the course of a Conciliation Conference convened by a Registrar, as well as subsequently confirmed in correspondence, 5 May 2014. It is suggested that the offer of settlement, if it had been accepted, would have put the wife in the same or a remarkably similar position to that which she ultimately achieved at hearing.
The husband's offer of settlement, accepting that it is consistent at both the Conference and as conveyed in correspondence, 5 May 2014- certainly there is no suggestion raised that it is not identical - would have seen the husband paying to the wife a sum of $1,063,801.
The offer, when confirmed in writing 5 May 2014 - and I accept that it was communicated on that day, the document suggesting it was forwarded by email - was expressed to remain open for a period of 28 days from the date of the letter, i.e. until 2 June 2014. The correspondence made clear that if the offer was accepted that the offered funds could be paid within 14 days. It was made clear that if the offer was not accepted that it would be relied upon with respect to costs.
The evidence would suggest that the offer, having been transmitted, was not responded to. The husband's attorneys, with some force, made clear that they heard not a sound from the wife's attorneys. It is unclear what passed between the wife and her attorneys. It is clearly a matter covered by legal professional privilege which need not, and should not, be waived for the purpose of this Application. However, it is suggested that there was a complete and deafening silence when the offer was made.
That silence is potentially of some real relevance as one of the issues that arises, in relation to both the disposal of the proceedings and the husband's offer, is that the wife had desired to receive a superannuation splitting Order, and sought to press for such an Order throughout the proceedings. Curiously, the husband had, as is apparent from his Response, also proposed a superannuation splitting Order. That should, one would think, have been a matter of consent between these parties. The Orders that they sought in relation to superannuation splitting were, in effect, identical.
It may be, and it will never be known, that had the offer been responded to, for example, with a proposition that the offer was accepted, subject to its makeup as, in part, a cash payment and, in part, a superannuation splitting Order, that the matter may have resolved. I make clear that the Court will never know the answer to that question, nor need it. I am not satisfied that it would change the outcome of this Application as I propose that it be determined.
At the conclusion of the proceedings, an erudite Judgment was delivered by His Honour Judge Donald. As a consequence of that Judgment, the wife received a payment from the husband of $636,043. She also received the superannuation splitting Order she had sought throughout the proceedings. Each party otherwise retained all assets in their respective possession, custody, and control.
Immediately prior to the substantive hearing, the wife's attorneys had made an offer of settlement on the wife's behalf. It is unclear whether that offer was responded to, and, again, I am not satisfied that whether it was so or not, that it would impact upon the decision that I must make.
The wife had proposed that she receive a payment of $861,956. That amount is something more than she, in fact, received. The amount the wife offered as a compromise of the litigation was in the order of $220,000 to $230,000 more than she ultimately received.
The husband submits that he would be entitled to his costs on an indemnity basis as the offer that he had made would have placed the wife in almost an identical position to that which she ultimately achieved. That position is, put more forcefully, on the basis that the pool of property available to the parties at the time that the offer was made was $100,000 less than the pool of property at the date of hearing, the home having increased by an agreed amount of $100,000.
The wife, for her part, resists an Order for costs on a number of bases. Firstly, the wife submits that the issues involved in the proceedings, particularly as regards the husband's compensation claim and receipt of funds, generated a level of complexity in the matter which did not make it possible to accurately predict the outcome which she might achieve. I have some difficulty accepting that proposition, although I do not reject the submission entirely. Certainly, the state of Full Court authority in relation to such matters is not entirely settled as significant discretion remains. There is, as it were, room for movement between precedent set by differently constituted Full Court benches. That is perhaps undesirable in a common law system but explicable. The reality does give some weight to the submission that is put. There was an argument to be had as to how those matters might be addressed.
Secondly, it is submitted that to the extent that the husband has incurred further cost, that he has had the benefit of interest upon the sums which he has retained, including from the date of hearing until the date of Judgment and eventual payment, such that the amount that the husband would have accumulated, at even a modest rate of interest, would approach, although not quite obviate against, the costs that he has incurred.
Thirdly, it is put that the financial position of the wife is significantly inferior to that of the husband. As a consequence of the Orders that were made by the Court, the wife has received approximately, although I do not suggest that it is specifically calculated, one-third of the total available assets, whereas the husband has retained a significantly greater proportion at approximately two-thirds.
All of those matters have some relevance. I propose to refer to these issues and other aspects of the evidence in addressing that which must be addressed by reference to section 117 of the Act. I propose to deal with each of the factors in subsection (2A) separately before considering them in combination.
Financial circumstances of the parties
These parties are both, as regards many other litigants, in a privileged position. The assets that they have available to them, although they may not consider it to be so, place them in, perhaps, the top three, if not top two per cent of the world's wealthy folk. The assets that they each have are worth over a million dollars. However, one must have regard to the financial circumstances of these parties as against each other, rather than the global community at large.
The financial circumstances of the parties would not create a justifying circumstance. It would be a rare circumstance in which the Court would make an Order purely because a party was so much better off than the other, although the evidence clearly establishes the husband as having greater assets available to him. For the husband that comes at a cost - his health, his functioning, and his enjoyment of life. Judge Donald accepted, and I need not further inquire, that the husband is unlikely to ever engage again in paid employment.
The wife is presently in paid employment, although her income is relatively modest, at or less than average weekly earnings. She needs to support herself from the funds that she has received, or will receive, including by superannuation.
The wife’s working life is not yet over, but it is not far from it. I do not say that to be in any way offensive to this good woman. It is purely a reality. She would, no doubt, desire to retire as early as possible, and enjoy what is left of life, hopefully long and plentiful.
The financial circumstances of the parties, perhaps, have greater relevance to justice and equity. There would be significant impost upon the wife of an Order for costs for $50,000. It would strip from her approximately eight per cent of that which she received. It would put the husband in a position whereby he obtains the full fruits of his litigation without expending costs. Again, there is some force to the submission put by Counsel for the wife that the husband has had some benefit by retaining the funds which the wife ultimately received, for a period of nine to ten months between hearing and ultimate payment if not for the totality of the litigation. That retention and “opportunity cost” substantially covered the costs incurred.
By reference to the above I am not satisfied the financial circumstances of the parties would assist in demonstrating the justice and equity of an Order for costs.
Clearly, neither party is in receipt of Legal Aid.
Neither party raises any criticism with respect to the other with respect to the conduct of the proceedings, at least insofar as issues of disclosure, discovery and the like apply. No such complaint is raised.
These proceedings, once they were transferred to, and determined in the Federal Circuit Court of Australia, were no longer the subject of pre-action procedures provided for by the Family Law Rules 2004 (see Thompson & Berg [2014] FamCAFC 73), or the requirements of the Civil Dispute Resolution Act 2011, proceedings under the Family Law Act being entirely excluded therefrom.
It is unclear what attempts at resolution or compromise of this dispute occurred, save the parties' attendance at a Conciliation Conference, and the offer of settlement raised thereat, followed ultimately by the wife's offer of settlement shortly prior to the hearing.
Proceedings before this Court should be addressed in a fashion and in a spirit designed to achieve resolution and compromise. That is inherent in the common law system.
The law is relatively clear as legislated by Parliament. The law, as interpreted by the Full Court and High Court of Australia is close to equally clear, although with some scope for movement, and some argument to be had when precedent is not entirely settled.
There is nothing which either party raises, nor which the Court could ascertain from that which has been considered, that would suggest that the parties have been resistant to attempts at compromise, albeit that such attempts have been extraordinarily limited. That has some relevance to which I shall return in considering offers.
Whether the proceedings are necessitated by the failure of a party to comply with a previous Order is not relevant.
Whether a party has been wholly unsuccessful is not specifically argued on the husband's part. The husband's case is founded far more substantially on issues relating to the offer. However, success or lack of success is often difficult to ascertain in proceedings before this Court, whether property or parenting.
I am conscious of the Full Court's decision of Davida & Davida (Costs) [2011] FamCAFC 61, and particularly that stated by the Full Court as follows:
The other justifying circumstances is the husband's relative success. True it is that the relevant paragraph in section 117(2A) refers to a party being “wholly unsuccessful”, but I think it is fair to say that the practice has been to look at what one might term the relative merits of success or lack of success between the parties, even if necessary doing that under the last matter mentioned in section 117(2A), being any “other” matter.
In that context, wholly unsuccessful means there was no justified basis for the position adopted, having regard to the outcome of the proceedings. Being wholly unsuccessful must look not just to the outcome but also the position adopted by the party.
That, I am satisfied, does have some real relevance to this case. As is apparent, the wife obtained Orders that were equal to, or marginally better than those she sought in her Initiating Application. True it is that the husband's compensation claim crystallised, and was then readily quantifiable during the course of the proceedings. However, the asset existed prior to the commencement of the proceedings. The husband introduced, at that point, a chose in action.
The wife had sought that she would receive 70 per cent of the nett equity, whether through sale or otherwise of the home, and an equal division of super. That she obtained. She received a little over 70 per cent of the nett equity in the home. She received one half of the superannuation.
The husband would appear to have achieved something similar to that which was sought in his Response. Overall, and without mathematically calculating it, the husband would appear to have obtained Orders that were roughly a 65/35 per cent division of the “pool” in his favour, treating as the pool for that exercise, the totality of assets, rather than adopting a “two pool approach”. On that basis, each party would appear to have been, at least on its face, equally successful and neither unsuccessful.
The parties approached the outcome of the litigation from different formulations and different compositions. If they had calculated that which each sought they might have realised, at an early stage and certainly once the husband’s chose in action crystallised, that they sought remarkably similar outcomes, the value of the end point calculated by the formula preferred by each being roughly the same.
One issue highlighted by Counsel for the wife is that the husband was wholly unsuccessful in resisting the wife's claim for an equal division of superannuation, and, curiously so in circumstances whereby he had, by his Response, sought the same Order as the wife. It is clear, from the reasons delivered by Judge Donald, that the husband had resiled from that position prior to hearing, and resisted an Order for division of superannuation on any basis, preferring to make a cash payment to the wife and retaining his superannuation intact.
His Honour touched upon that in the concluding paragraphs of his Judgment, and particularly commencing at paragraph 74 thereof. His Honour highlighted that it would be unfair for the wife to not benefit from tax and other advantages that followed from having a portion of her settlement as superannuation rather than purely a cash payment.
In those circumstances, the parties have been equally successful or unsuccessful.
Whether a party has made an offer in writing to settle the proceedings in the terms of the offer
The terms of the husband’s offer are set out above.
As the Full Court was clear in Browne & Green (2002) FLC 93-115, at paragraph 57:
The insertion of s.117(c) in the legislation [whether that section continues to be relevant or otherwise to these proceedings I need not determine] ...is clear indication of the desire of Parliament to enable parties to avoid unnecessary litigation by indicating to the other party an appropriate basis upon which litigation can be settled. The failure to heed a reasonable offer in the circumstances where there is adequate knowledge to the parties at the time the offer was made to give it proper consideration, is something to which very significant weight indeed ought normally be given.
There are a number of aspects of the Full Court's opinion that are relevant to this case.
Firstly, it is submitted that when the husband's offer was made that the parties were relatively agreed as to the asset pool. Indeed, they were.
Having agreed on the composition and value of the pool there was some scope for valid argument between them as to the application of precedent to the circumstances of their case, such as might well have impeded their attempts to resolve the matter.
There is the absence of response to the offer which is concerning, to say the least. Certainly, acknowledgement of the offer, and some indication as to its acceptance or otherwise, whether upon terms or not, would have been appropriate.
The Court cannot undo the past. The Court must simply deal with circumstances as they exist. Those circumstances would suggest that the offer, in hindsight, having regard to that which was achieved, might have placed the wife in as good a position as she would have achieved (indeed, all the more so, bearing in mind the hundred-thousand-dollar increase in the value of the matrimonial home since the offer was made).
Set against all of those matters, however, are the uncertainties that arise from the vagaries of litigation. The husband had, by that time, received, or substantially received, the funds to which he was entitled by way of compensation.
No issue is raised that there was any other outstanding disclosure required to enable the offer to be properly considered. However, the offer, whether it was accepted by the wife's attorneys or not, did not make provision for superannuation splitting. The parties, clearly, would appear to have remained in issue in relation to that matter.
The offer is important. It will be given substantial weight. It might, to some extent, almost single-handedly represent a justifying circumstance to consider an Order for costs. However, it must be balanced against all other matters, and in that regard, I propose to consider such other matters as are relevant.
There is a growing body of authority, not only from the Full Court and High Court of Australia but superior Courts of State jurisdictions, regarding an ethos towards settlement and resolution in the resource-starved environment of Courts, and particularly having regard, at a State level, to matters such as the Uniform Civil Procedure Rules 2005 (NSW).
In Bryant v Hawkesbury Radio Communication Co-operative Society Limited [2014] NSWSC 848, Sackar J opined, at paragraph 110:
In my view, in the modern era, and consistent with section 56 of the Civil Procedure Act, parties have an obligation to constructively collaborate, not just on the issues to be ventilated, but on the most efficient methods to do so. As has been otherwise said, litigation is not a game, and the expense of the Courts to the public is so great that their use must be made as efficient as is compatible, with just conclusions.
At paragraph 157, Sackar J further opined:
While the system of justice administered by Courts in this state is adversarial, in the modern era, in my view, parties have a distinct and clear obligation to cooperate with each other and the Courts to achieve a quick and inexpensive solution to their grievances, including, in my view, good faith settlement discussions.
At that point, I return to that previously observed.
Save the Conciliation Conference and each party's offer, whether confirming of that which was made at the Conference or made later in the piece, there is no evidence that these parties have engaged in any attempt to resolve this dispute. That absence of effort at resolution is potentially to the prejudice of one, if not both parties, and, certainly, to the Court and the community.
As was opined in an opinion piece, written by a solicitor from Clayton Utz on behalf of LEADR, August 2014, and in discussing Sackar J's above Judgment, even a party with an “open and shut case” may be effectively penalised on the issue of costs if they have exploited their position in the litigation for tactical advantage at the expense of a genuine attempt to resolve the dispute.
I do not suggest that the husband's position goes so far. I do not suggest that he has exploited his position, having had use and occupation of the matrimonial home and sole receipt of the cash proceeds of his compensation settlement. Certainly, various aspects of the husband’s use of funds were raised before Judge Donald. I need not revisit them.
However, absent clear evidence to suggest that some further attempt beyond the singular offer made, expressed to remain on foot for 28 days and then withdrawn, I would have some concern in placing undue weight upon the offer of settlement that was made, particularly as it was in existence for a limited period of time.
The offer was made by the husband at the Conciliation Conference and reaffirmed on 5 May 2014. The offer, singular, was expressed to be constructively withdrawn on 2 June 2014, 28 days later. That is the extent of the husband’s offer and of his offers in these proceedings over some four and a half years.
The husband’s offer was not an offer that was expressed to remain open and capable of acceptance beyond 2 June 2014. It was not an offer that the evidence suggests was ever repeated. It was an offer that was put, it would seem rejected, or, at least, inferred to be rejected through silence, and then, by its own terms, withdrawn. As a consequence, that then left these parties, subject to the wife's subsequent offer, which clearly was not accepted, to litigate their case, each party falling back to the position that they had adopted, the trench they had dug, as it were. If the parties had thought to calculate the effect of the relief they each sought they would have realised that their positions, there trenches to continue the analogy, were as close as those of the combative German and British troops at the Somme, within shouting distance.
There has been similar discussion of the above principles in authorities such as, Ken Tugrul v Tarrants Financial Consultants Pty Ltd (No.5) [2014] NSWSC 437, and alike list over quite some time, not only in New South Wales, but in Victoria, (for example, Setka v Abbott [2013] VSCA 345), discussing the overarching purpose of civil proceedings, and Yara Australia P/L v Oswal [2013] VSCA 337.
As was opined by Justice Felix Frankfurter of the US Supreme Court, “litigation is not a game of chess. It is a means to an end”. There was a means open to these parties to resolve their dispute. They could have, and should have.
It is not a case which was has led to any great advantage for either party. They have each ended up in about the position that was proposed by the Application or Response that the other had filed. Those positions suggested the parameters of the dispute by reference to authorities such as U & U [2002] FLC 93-112. To, again, continue the above analogy, it is as though these parties have, from their respective trenches, fought over a narrow strip of “no man’s land”, occasionally advancing and retreating, with great casualties (cost) and little nett gain if logical purpose.
I am also conscious of the decision of Fitzgerald JA in Studer v Boettcher [2000] NSWCA 263. At paragraph 63, His Honour opined:
It is often impossible to predict the outcome of litigation with a high degree of confidence. Disagreements on the law occur even in the High Court. An apparently strong case can be lost if evidence is not accepted, and it is often difficult to forecast how a witness will act in the witness-box. Many steps in the curial process involve value judgments, discretionary decisions and other subjective determinations, which are inherently unpredictable. Even well-organized, efficient Courts cannot routinely produce quick decisions, and appeals further delay finality. Factors personal to a client, and any inequality between the client and other parties to the dispute are also potentially material.
Litigation is highly stressful for most people, and notoriously expensive. An obligation on a litigant to pay the costs of another, in addition to his or her own costs, can be financially ruinous. Further, time spent by parties and witnesses in connection with litigation cannot be devoted to other, productive activities. Consideration of a range of competing factors such as these can reasonably lead rational people to different conclusions concerning the best course to follow.
The sage words of Fitzgerald JA have some real resonance and application to this case. There were disagreements as to the law. As indicated, and it is in no way intended to be pejorative of the differently comprised benches of the Full Court, there is some small degree of uncertainty largely arising from legitimate exercise of discretion at first instance. Precedent is not as settled as it might be with respect to the introduction of assets of the nature Mr Baker has introduced. Accordingly, there was a valid argument to be had, albeit at the expense of the parties, the Court, and other litigants, whose work was displaced by the hearing of this dispute.
There were issues with respect to the facts of the case. Both parties won or lost some of those arguments. However, the parties clearly had factual disputes between them which, as a consequence of their absence of compromise, did not allow resolution. At the end, like the great combatants of World War One (or any war for that matter) the ordinary working folk represented by these parties had fought the battle for an elite (their attorneys and the Court and the general cause of jurisprudence) with all suffering incurred by this husband and wife and for no realistic benefit to either.
Certainly, these parties have incurred substantial costs, in excess of $50,000 each. I do not express it as substantial costs to, in any way, comment upon that which is charged by these attorneys or the profession at large. That is a matter for other times and other fora. However, the parties' costs are comparable. They have each, as it were, wagered a little over $50,000 in betting that the outcome that they sought was right.
Ultimately, it is difficult to see how either was dramatically unsuccessful. Certainly, an offer was put which, if it had been accepted, would have concluded the matter and, without having known the answer to the various uncertainties as to both law and fact, would have placed the wife in a similar position to that which she ultimately obtained. As a corollary, it would have placed the husband in a similar position.
However, the wife obtained that which she sought in her Application - 70 per cent of the home and an equal split of super. The husband obtained, effectively, that which he sought, a 65/35 per cent division of the total assets in his favour.
Accordingly, it would seem that the parties have been engaged, without intending to be pejorative of them or their attorneys, in an exercise of futility, justified by the uncertainties which they each felt they faced.
I am not satisfied, in those circumstances that a justifying circumstance is properly made out. Lest I am wrong in that regard, I am conscious that I should also address, and will, very briefly address, the basis of costs being sought on an indemnity basis.
The Full Court in Prantage & Prantage [2013] FamCAFC 105, at paragraphs 76 to 86, dealt comprehensively with the issue of indemnity costs and in so doing reviewing earlier decisions of a variety of Courts. Certainly, what flows from those portions of Prantage & Prantage, which I incorporate herein, is the conclusion drawn by their Honours that the usual rule in proceedings under this Act, and, indeed civil litigation generally, is an Order for party/party rather than indemnity costs.
76. The law relating to indemnity costs has been well established in this jurisdiction for many years, a fact the trial Judge himself properly recognised.
77. This Court recognised in Kohan (supra) that there is nothing in the Act which inhibits the making of an order for indemnity costs. However, while acknowledging there is a discretion “in an appropriate case” to make an order for indemnity costs, the Full Court also said, at 79,605:
it is fundamental to the exercise of that discretion in the Family Court that the Judge should not only understand that such an order is a very great departure from the normal standard, but also that the Judge should know what the terms of the agreement are, to what extent it exceeds the parameters set by the scale and what its likely impact will be on the financial position of each of the parties. This impact is a relevant matter to which the trial Judge should have had regard, when considering the financial circumstances of each of the parties to the proceedings under s117(2A)(a), or perhaps even more as a relevant matter under paragraph (g). The degree to which a costs agreement departs from the established norm and the actual financial significance of such a departure may itself be a reason for not ordering costs on an indemnity basis.
78. The Full Court, when re-exercising the trial Judge’s discretion in Kohan, also said, at 79,615:
When considering what is just in this case, one must bear in mind that a party who enters into a costs agreement should be warned and must anticipate in this jurisdiction that each party might well have to bear his or her own costs, and that even if an order for party and party costs is made, the difference between party and party costs and costs payable under a costs agreement may consume all, or a substantial part, of the property order. In this particular case, the wife changed her solicitors in August 1990. It must then have been apparent to her, or at least to her new solicitors, that this might become drawn out litigation and that a rate of costs which amounted to three times the scale, exposed the wife to great risks. If she was willing to assume these risks, it does not seem just to saddle the husband with them. If they were not explained to her, she might have her own remedies.
79. At the time Kohan was decided, there was no mention of indemnity costs in the Rules. This is no longer the case, as will be seen from our recital of the Rules earlier. It will also be noted that the requirement for the Court to be informed of the terms of the relevant costs agreement has now been enshrined in the Rules. Notwithstanding this formal recognition of indemnity costs, this Court and trial Judges in this jurisdiction have routinely followed Kohan in holding that indemnity costs orders are to be seen as “a very great departure from the normal standard”. We consider citation of authority to this effect would be otiose, so well accepted is the proposition.
80. We know of one attempt in another jurisdiction to move away from the “usual rule” that costs are awarded on a party and party basis. In Marks v GIO Australia Holdings Ltd (1996) 137 ALR 579, Einfeld J gave reasons why the “usual rule” should no longer apply in the Federal Court of Australia.
81. The views expressed by Einfeld J were the subject of prompt criticism by the Full Court of the Federal Court in Re Wilcox, Ex parte Venture Industries Pty Ltd (1996) 72 FCR 151, where Black CJ said at 153:
Recently, in Marks v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128, Einfeld J expressed the view that it was wrong to begin any consideration of costs by reference to a usual rule. Rather, he considered, the question of costs should be determined on its merits without any usual rule or preconception as to the costs issue (see at 133). Other judges, however, have continued to follow the established approach (see, for example, MGICA (1992) Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236) and it was recently applied by a Full Court in McHattan v Saramoa Charters Pty Ltd (unreported, Federal Court, Full Court, 17 September 1996). Moreover, one of the difficulties with any different approach is that O 62 of the Federal Court Rules 1979 (Cth), the costs order, proceeds on the footing that in the ordinary case costs will be ordered on a party and party basis. This is now reinforced by the provisions of O 23, r 11(4). Order 23 provides for the making of offers of compromise and, in specified circumstances, r 11(4) provides for a presumptive entitlement to costs on a party and party basis up to and including the day an offer was made and for indemnity costs after that day. Another difficulty with any departure from the established approach, an approach described by Sheppard J in Colgate-Palmolive (at 233) as “entrenched”, is the uncertainty that a different approach would involve.
It may be that on some future occasion a Full Court will nevertheless be asked to reconsider the basis upon which indemnity costs orders in this Court should be made, but no such invitation was extended in this case and the present application for indemnity costs should be considered in accordance with the well established principles discussed by Sheppard J in Colgate-Palmolive and summarised by Hill J in John S Hayes.
82. Cooper and Merkel JJ went further in their joint judgment in Re Wilcox. They said at 156-157:
The issue whether costs should be ordered on a party and party basis or on an indemnity basis has acquired increasingly greater significance as the gap between the two bases appears to have grown.
The gap has highlighted the conflict between two seemingly irreconcilable objectives. The first is protecting access to justice by only exposing an unsuccessful litigant in the usual course to an order for scale costs on a party and party basis. The second is relieving a successful litigant from the burden of costs which that litigant should not have been required to incur. These and other policy factors have been considered by the courts over a very long period in order to arrive at the principles which govern the undoubted discretion of courts to depart from ordering costs on a party and party basis and ordering costs on an indemnity basis. The principles were stated by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225.
The recent decision of Einfeld J in Marks v GIO Australia Holdings Ltd (No 2) (1996) 66 FCR 128 has cast doubt on these principles. In Marks, after discussing s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA) and a number of policy considerations in relation to costs, Einfeld J concluded (at 133):
“The matter of the interaction of ‘the usual rule’, particularly as affects indemnity costs, with the statutory regime of the Federal Court Act is one which in my most respectful opinion requires fresh attention. An interpretation which I believe to be more in keeping with such a statutory provision is that the court is to start with no ‘usual rule’ or preconceptions as to the costs issue. Rather, the question of costs, like other aspects of the case, will fall to be determined on its merits. This means that the applicant for indemnity costs must put forward all of the circumstances which suggest that the most [r]igorous order should be made.”
In the light of that conclusion it is desirable that we set out our views on the manner in which the court's jurisdiction to award indemnity costs ought to be exercised.
Until Marks the principles enunciated in Colgate-Palmolive and generally applied in the Court were:
1. Section 43 of the FCA confers an absolute and unfettered discretion on the Court to make orders as to costs but the discretion must be exercised judicially.
2. In order to exercise the discretion judicially the following principles have been accepted by the Court as applicable:
(a) the Court ought not to depart from the rule that costs be ordered on a party and party basis unless the circumstances of the case warrant the Court in departing from the usual course;
(b) the circumstances which may warrant departure from the usual course arise as and when the justice of the case so requires or where there may be some special or unusual feature in the case to justify the Court in departing from the usual course;
(c) whilst the circumstances in cases in which indemnity costs have been ordered offer a guide, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for costs other than on a party and party basis.
83. Cooper and Merkel JJ went on to consider relevant provisions of the Federal Court of Australia Act 1976 (Cth) and the Federal Court Rules 1979. Having done so, their Honours said, at 158:
As was pointed out by Sheppard J in Colgate-Palmolive, the costs for which these rules provide are costs on a party and party basis. The rules do not deal with the award of costs on any other basis. Although the gap between actual costs and the scale rate used in determining party and party costs may be increasing, it is relevant to note that the criterion in r 19 in respect of the items for which costs may be recovered allows recovery of all such costs, charges and expenses as appear to the taxing officer:
“to have been necessary or proper for the attainment of justice or for maintaining or defending the rights of a party … ”
The rules apply unless otherwise ordered. The very fact and terms of the relevant rules suggest to us that, unless the justice of the particular case requires or some special or unusual feature arises, the rules should not be departed from by the making of some other order for costs in exercise of the jurisdiction conferred under s 43 [of the Federal Court Act]. The generality of the criteria for departing from the usual rule ensures that the discretion to depart from the rule can be exercised whenever the Court is of the view that after applying the criteria to the facts of the particular case, it is just to do so. Such an approach is consistent with the requirement that the discretion to award costs is to be exercised judicially.
However, there are other reasons for continuing to apply the principles that have been generally applied in the Court.
As was also pointed out by Sheppard J in Colgate-Palmolive, for the reasons discussed by him, the ordinary rule in favour of party and party costs, has been settled practice in the courts in England and Australia over a very long period of time. It is not readily apparent why that practice should be changed. It may well be that the scale rates, rather than the principles, require review.
Further, a general discretion of the kind suggested by Einfeld J is likely to give rise to greater disputation over costs than already exists, with possible inconsistency within the Court and between courts. Such outcomes do not advance and are not in the interests of the administration of justice.
The combination of these factors leads us to the view that the principles enunciated in Colgate-Palmolive as stated above ought to continue to be applied in the Court.
84. Our research shows that the Federal Court has continued to apply the “usual rule” that costs are payable on a party/party basis. See Boyapati v Rockefeller Management Corporation (No 2) [2008] FCA 1375, at [29] to [31], where Kenny J referred to the many cases where the rule has been applied in the Federal Court. We observe also that the rule was applied (and Re Wilcox was cited with approval) by this Court in Strahan & Strahan (Appeal Costs) [2009] FamCAFC 225 at [13] per Boland, Thackray and O’Ryan JJ.
85. The same rule is applied in the Supreme Courts of:
New South Wales (see Michos v Council of the City of Botany Bay (No 3) [2012] NSWSC 1465 at [7]);
Victoria (see State of Victoria v Grawin Pty Ltd [2012] VSC 157 at [24]);
Queensland (see Pine Rivers, Caboolture and Redcliffe Group Training Scheme Inc (t/as East Coast Apprenticeships) v Group Training Assoc Qld and Northern Territory Inc [2013] QSC 87 at [16]);
South Australia (see Kenneally v Pouras & Ors [2007] SASC 303 at [13]);
Tasmania (see Hayward v Forest Practices Tribunal (No 3) [2004] TASSC 14 at [6]); and
Western Australia, where in Re Malley SM; Ex parte Gardner [2001] WASCA 83, a bench of five Judges held that a special costs order (another description for an indemnity costs order) will only be made in exceptional circumstances.
86. It will accordingly be seen that if the trial Judge purported to depart from the “usual rule”, he would not only have declined to follow settled authority in this Court, but also authority applied in all other superior courts in Australia.
As was observed by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536, an Order for indemnity costs might be made when it is seen as, “necessary or proper for the obtainment of justice, or for maintaining or defending the rights of a party”.
Whilst I am not satisfied that justifying circumstances are made out which warrant an Order for costs at all I am satisfied that if such circumstances were made out that I would not be satisfied that indemnity costs would be appropriate.
If an Order for costs were made I at least have the certainty, the matter having passed between two different Courts, that costs would be determined on a party/party basis by reference to this Court's indicative scale of costs in Schedule 1. Rule 21.05 of the Federal Circuit Court Rules makes so much clear. I have no doubt that calculation undertaken by Mr Baker's attorneys is accurate. That is what would be ordered if costs were justified.
I need not discuss the issue any further, however, save to observe that the costs which would arise on that basis would, I am satisfied (though I need not address them further), be compensated by the interest that has accrued on the funds which Mr Baker held prior to payment to the wife. The funds derived from such which interest might have been adjusted in favour of the wife, if Orders had been made on a different basis. I make clear that I am not critical of His Honour Judge Donald for the Orders he made, nor the time taken for the delivery of those reasons. Judge Donald was engaging in a substantial workload at a time when he was gearing up to take extended leave, and with many pressing matters, and more pressing matters before him than this.
For all of those reasons, I am not satisfied that a justifying circumstance is made out. Lest I am wrong in that regard, I would not be satisfied that it is just and equitable for an Order for costs to be made, having regard to the above discussion. Thus, the Application would, I am satisfied, fail on that basis also.
The parties have each incurred costs in relation to address of this issue. I am satisfied that the most appropriate, the most just and equitable Order, would be for those costs to lie where they lie and for each party to meet the costs of and incidental for the conduct of this controversy. Accordingly, I make Orders as follows (see Orders).
I certify that the preceding one hundred and seventeen (117) paragraphs are a true copy of the reasons for judgment of Judge Harman
Date: 14 April 2016
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